Wheat: Could a U.S. crop failure spark a bull market?

Wheat prices have been in a precipitous decline since they brushed close to $10 per bushel highs back in August. Recent reports were mostly bullish.

The Jan. 11 U.S. quarterly stocks report was neutral for wheat, with Dec. 1 inventories just about two million bushels above traders’ guesstimates. The January crop report, however, increased the estimate for feed-wheat usage by a more substantial 35 million bushels. That surprised traders and drew the estimate for ending stocks down from last month by a like amount.

The winter wheat planting report was equally bullish. The street was expecting farmers to have taken advantage of what are still historically very high prices, and plant lots of winter wheat. The acreage guesstimate called for a jump from last year, by 1.364 million acres, to 42.687 million acres. The actual figure came in at 41.82 million acres. Using the average of the planted/harvested ratio and yield over the past three years, the difference between the guesstimate and the actual figure is about 35 million bushels.

The initial reaction to the outlook for lower supplies for both the current 2012-13 and upcoming 2013-14 marketing years sparked a 60¢-per-bushel rally. There has been no follow through, though, as the market consolidates the gains.

The smaller acreage estimate is exacerbated by poor weather for the winter wheat crop that was planted last fall. The key growing regions are suffering from low soil moisture. Kansas, Colorado, Nebraska, and Oklahoma are in desperate need of either snow or rain to replenish moisture. Millions of acres are at risk, with Kansas, the largest wheat producing state, in the worst shape.